Title insurance

Title insurance is a contract under which the policyholder is protected from losses arising from defects in the title. A title insurance company determines whether the title is insurable, based on a review of the public records. If so, a policy is issued. Unlike other insurance policies that insure against future losses, title insurance protects the insured from an event that occurred before the policy was issued. Title insurance is considered the best defense of titles. The title insurance company will defend any lawsuit based on an insurable defect and pay claims if the title proves to be defective.

After examining the public records, the title company usually issues what may be called a preliminary report of title or a commitment to issue a title policy. This describes the type of policy that will be issued and includes:

The premium for the policy is paid once, at closing. The maximum loss for which the company may be liable cannot exceed the face amount of the policy. When a title company makes a payment to settle a claim covered by a policy, the company generally acquires the right to any remedy or damages available to the insured. This right is called subrogation.

Exactly which defects the title company will defend depends on the type of policy. A standard coverage policy normally insures the title as it is known from the public records In addition, the standard policy insures against such hidden defects as forged documents, conveyances by incompetent grantors, incorrect marital statements, and improperly delivered deeds.

Extended coverage, as provided by an American Land Title Association policy, includes the protections of a standard policy plus additional protections. An extended policy protects a homeowner against defects that may be discovered by inspection of the property: rights of parties in possession, examination of a survey, and certain unrecorded liens.

Title insurance does not offer guaranteed protection against all defects. A title company will not insure a bad title or offer protection against defects that clearly appear in a title search. The policy generally names certain uninsurable losses, called exclusions. These include zoning ordinances, restrictive covenants, easements, certain water rights, and current taxes and special assessments.

The different types of policies depend on who is named as the insured. An owner's policy is issued for the benefit of the owner and his or her heirs of devisees. A lender's policy is issued for the benefit of the mortgage company. The amount of the coverage depends on the amount of the mortgage loan. As the loan balance is reduced, the coverage decreases. Because only the lende's interest is insured, it is advisable for the owner to obtain a policy as well.

A lessee' interest can be insured with a leasehold policy. Certificate of sale policies are available to insure the title to property purchased in a court sale